Tennessee’s Department of Revenue has issued Notice 24-08, outlining the sales and use tax sourcing changes introduced in the “Tennessee Works Tax Act”.
On 11 May, 2023, Governor Lee signed into law the Tennessee Works Tax Act (TWTA), Public Chapter 377 (2023). The TWTA makes several changes to Tennessee sales and use tax laws by adopting most sourcing provisions consistent with the Streamlined Sales and Use Tax Agreement.
Adopting these sourcing rules clarifies for sellers which state’s tax is due on a sale into or outside the state.
Starting 1 July, 2024, the Act applies destination sourcing for interstate sales of services performed on tangible personal property and computer software.
The TWTA adopts destination sourcing for interstate sales of services performed on tangible personal property and computer software.
Tennessee imposes tax on the following sales of services to tangible personal property and computer software:
- Performing repairs to tangible personal property or computer software.
- Laundering or dry-cleaning tangible personal property.
- Installing tangible personal property that remains tangible personal property after installation.
- Installing computer software.
For interstate sales of these services:
If the service is performed in Tennessee and the serviced property or software is then shipped or delivered by the seller to the purchaser outside Tennessee, the sale is no longer sourced to Tennessee and reported as exempt interstate sales.
If the service is performed outside Tennessee and the serviced property or software is then shipped or delivered for use and consumption in Tennessee, the sale is sourced to the location where the serviced property or software is received by the purchaser or its designee and is subject to tax at the state and applicable local rate.
Sales of services performed on tangible personal property and computer software where the serviced property or software is received by the purchaser or its designee in Tennessee are not impacted by the new sourcing provisions and are subject to tax.
